Barclays Pays a Heavy Price for Protium Ruse

Perhaps the most intriguing aspect of Barlcays’ 2010 results is the revelation that the U.K. bank is to take a £532 million impairment charge on its loan to Protium. Protium was a $12 billion portfolio of toxic assets that Barclays controversially transferred to a third party asset manager in 2009. Well, I say third party, but actually the third party asset manager, C12, consisted of the team of 40-plus employees previously responsible for managing the assets within Barclays who set themselves up as a separate legal entity and bought the portfolio using a cheap, over-collateralized loan from Barclays.

The whole point of Protium was to enable Barclays to avoid taking the kind of impairment charges it has just announced. I wrote at the time that the transaction looked like a classic smoke and mirrors operation. Barclays was swapping a bunch of toxic exposures that would have had to be marked to market for a 12-year loan that would only need to be written down as actual losses materialized. The result was that Barclays was able to report higher profit and capital ratios than would otherwise have been the case, potentially sparing shareholders a highly dilutive equity issue.